9.9 C
Harare
Saturday, May 25, 2024
spot_img

Evaluating the current tobacco model

Article by Kevin Tutani

Evaluating the current tobacco model

Local production data shows that Zimbabwe is the fourth-largest producer of tobacco, globally. The 2022/23 cropping season resulted in a harvest of 296,1 million kgs, which places Zimbabwe comfortably within the top 5 producers of the crop, worldwide. The crop has managed to generate US$896 million in gross export earnings. It also constitutes as much as half (50%) of Zimbabwe’s total agricultural revenue. At first instance, the mentioned figures appear as though everything relating to tobacco is beneficial for the country and overall economy. However, as with all things, a proper analysis of the sector, is essential in order to determine whether it is truly beneficial, or its impact is exaggerated. To arrive at the conclusion of the sector’s significance, the following will be reviewed; important statistics, challenges and opportunities.

Important statistics

Small holder farmers comprise the majority of tobacco farmers, easily numbering up to, over 100 000. Of the 2022/23 total tobacco output (296 million kgs), small-scale farmers contributed about 163 million kgs, which translated to US$480 million in export earnings, as reported by Minster of Information, Publicity and Broadcasting Services, in a post-cabinet meeting in October, 2023. This also seems as a great achievement but it is only until the figures are interpreted as earnings per each farmer. With 100 000 small scale farmers, the $480 million translates to only US$4 800 per farmer. From these gross earnings, costs have not been removed. Assuming $2800 in costs, the earnings for each small-scale farmer are reduced to US$2000. This figure becomes more tragic when pitted against the 4 month period through which the tobacco is grown, which may take even longer (than 4 months), due to the time spent during harvesting, curing the crop, coordinating the trips to the market and eventually selling to the buyers (also known as merchants). Factoring in the 4 month growing period, earnings from tobacco translate to only US$500 per month, for the small scale farmers (using average figures).

Currently, Zimbabwe can only produce 40% of the inputs required in the production of tobacco, with the majority (60%) being imported.

Of the country’s total tobacco harvest, about 70% is exported as tobacco leaf, with no value added. 5% is exported as cut rag, which comprises the shredded tobacco used in the manufacturing of cigarettes. Only 2% is converted into cigarettes, which are sold locally and also exported. The major destinations of Zimbabwe’s cigarette exports are Mozambique (78%), South Africa (12%) and Zambia (5%). The tobacco harvest which is not exported as leaf, cut rag or cigarettes, is exported as tobacco by-products. These figures emphasize that Zimbabwe is not utilizing its major cash crop.

It is also essential to state that, about 92% of tobacco farmers are not self-reliant. They depend on foreign firms to fund their productivity. Most of these firms have contractual arrangements whereby they provide seed, fertilizers, pesticides and herbicides, in exchange for the physical labour and expertise of the local farmers. Upon harvest, the farmers then sell their crop to the foreign firms, which pay for it, after deducting the cost of inputs which they had provided to farmers earlier on. There are about 38 of such contracting firms operating in Zimbabwe.

Due to the importation of most farming inputs and low levels of value addition, alongside a high reliance on foreign funding for production, as it stands, official statistics show that the country’s net benefit from tobacco is only around 12.5%. This implies that, from the $896 million tobacco earnings of last year, Zimbabweans are likely to remain with a mere US$112 million.

Challenges

Firstly, since more than 90% of the local crop is exported in an unprocessed form, it is earning the country extremely less than it would have if the exports comprised manufactured tobacco products. Zimbabwe produces around 6% of the world’s tobacco output. As of 2023, the value of tobacco products sold around the world, amounted to US$850 billion. In keeping with Zimbabwe’s 6% share of total world output, the country was eligible to make US$51 billion from its crop, if it had manufacturing capabilities and sold final products (traditional cigarettes, electronic cigarettes or vapes, shisha tobacco, chewing tobacco, etc). It is fair to admit that, US$51 billion might be too ambitious for Zimbabwe at this stage but the country could at least make even US$5 billion, if it had made moderate attempts to have more of its crop exported as manufactured tobacco commodities.

Secondly, domestic cigarette manufacturers are failing to realize growth due to their inability to register their products for duty-free and reduced-duty privileges in countries which have established favourable trade agreements with Zimbabwe. This means that, the cigarette manufacturers would have been making more exports within SADC, COMESA, the rest of the African region and the EU, if the process of registering their products for duty-free benefits was not as complicated and time-consuming.

Thirdly, tobacco is responsible for the loss of about 60 000 hectares of Zimbabwe’s forests, each year. Several farmers still use wood to cure (dry) their crop when they have harvested it. In an attempt to address this, forestry projects linked to the tobacco sector, targeted to plant only 5 000 hectares of forests in 2023. The 5 000 hectares were to be planted by the Sustainable Afforestation Association (3 200 ha), whilst the Tobacco Industry Marketing Board (TIMB) and small scale farmers would plant an additional 300 ha. The tripartite of; the Forestry Commission, tobacco contracting companies and individual growers would be responsible for the remaining 1 500 ha. Therefore, policy-makers should determine if the mismatch between tobacco deforestation and reforestation, of about 55 000 hectares (60 000- 5 000) each year, should be accounted for, when calculating the actual benefit or costs of the crop.

The non-monetary costs of deforestation include; reduced rainfall in the country, degradation of the local climate (hotter weather) and higher incidences of ill health as locals are subjected to the unfavourable weather. Unfortunately, all the mentioned non-monetary costs translate into a monetary figure through their indirect impact on the economy, through time. For example, reduced rainfall affects Zimbabwe’s overall agricultural output. A decline in the local weather conditions can also curtail the growth of the tourism sector, as both domestic and international tourists would prefer to travel to destinations with a balanced climate (of which there are now less of such in Zimbabwe). A higher incidence of ill health owing to a hotter and unbalanced climate also implies that the public healthcare system would be burdened by more citizens needing treatment for the various pertinent ailments. To add to that, when citizens are generally unwell, their productivity in their workplaces and the overall economy, becomes limited.

There are also widespread reports which indicate that several farmers are now perpetually indebted to the companies which provide them with inputs (contracting companies). This is suggested to be the result of contracting companies overcharging for inputs provided, providing inadequate inputs, charging an interest for cost of inputs or opting to purchase the farmers’ products (tobacco leaf) at a very low price, due to their decision to assess the farmers’ tobacco leaf as a poor grade. Since the contracting companies are permitted to also grade the farmers’ product, the unequal power balance has led to such an unfavourable situation. For this reason, several studies have concluded that, a significant number of tobacco farmers are food-insecure, living in poverty and locked in perpetual debts to contracting companies, since their business arrangement does not produce profits for them. In this regard, the Zimbabwean authorities should also include the debts of farmers to contracting companies, when they calculate the actual net-benefit of cultivating the crop. It may then be realized that the benefit is much lower, than the already acknowledged meagre one (US$112 million, or 12.5% of US896 million). Moreover, the fact that contracting companies continue the farming arrangement in spite of the perpetual debt, insinuates that, it is possible that they (the companies) are making huge profits regardless of the perpetual losses faced by their farming partners.

Tobacco has also been acknowledged as a hazardous product by the majority of the world’s nation’s. The Framework Convention on Tobacco Control (FCTC) of 2005, which was ratified (accepted) by over 170 countries, has seen the majority of governments around the world embarking on anti-smoking campaigns which have led to a decline in the growth of the world’s smoking population. Resultantly, as the years go by, there is likely to be an oversupply of tobacco in the world market, in relation to demand. This as well, does not augur well for the local tobacco sector.

Opportunities

In order to address the severe deforestation associated with the crop, the Ministry of Environment should find it beneficial to rapidly facilitate the implementation of the commitment by the UAE’s- Blue Carbon Trading to reforest about 7,5 million hectares of Zimbabwe’s landscape (for free), in a deal signed in September 2023. Blue Carbon Trading will benefit from monetizing the project as it sells carbon credits (from the project) in the international carbon credit market. The Ministry of Environment can also negotiate for a US 1 cent fuel levy, with the revenue being used to replenish the country’s declining forests. With a yearly fuel consumption of around 1.8 billion litres (petrol and diesel), the levy would translate to around US$18 million, which can then be used for national reforestation projects. If the large-scale reforestation is successful, the government will need to create more job-roles for forest rangers, who will be responsible for protecting the forests from fires, pests, weeds, or loggers.

The Ministries of Agriculture, Finance and Industry, should also negotiate to have more global cigarette manufacturers to establish their operations in Zimbabwe. This is to ensure that, the country exports final tobacco products, instead of unprocessed tobacco leaf. In that regard, the locally-based British American Tobacco should be encouraged to make more cigarette brands which are consumed beyond the SADC region and the African continent. ZimTrade may also find it useful to visit top cigarette-importing countries such as Japan, Italy, Spain and Germany, which all import cigarettes worth over US$1 billion each year. The trade organisation (ZimTrade) may need to embark on negotiations to have Zimbabwean and foreign, joint-venture manufacturing companies, to set up operations in these large cigarette-consumer markets.

The registration of Zimbabwean cigarettes for favourable or duty-free benefits should also be speedily coordinated. In this regard, as much cooperation should be provided to local cigarette manufacturers, as possible, from the highest level in government.

In order to prevent a strong dependence on tobacco, the country will also need to expedite research into alternative crops, which tobacco farmers can easily switch to. Of the proposed ones, industrial hemp may have a great chance of finding success. If local hemp research is fast-tracked, Zimbabwe has an opportunity to create a global competitive advantage in it (hemp), since most countries are delaying in their commercialisation of the crop. For that to be realized, the main thrust of the Tobacco Research Board (which has a mandate over local hemp research) should strive to have hemp cultivated as an outdoor crop, instead of within greenhouses only. Outdoor cultivation would imply that hemp will quickly become a genuinely commercial crop in Zimbabwe.

Kevin Tutani is a political economy analyst- tutanikevin@gmail.com

Related Articles

[td_block_social_counter facebook="tagdiv" twitter="tagdivofficial" youtube="tagdiv" style="style8 td-social-boxed td-social-font-icons" tdc_css="eyJhbGwiOnsibWFyZ2luLWJvdHRvbSI6IjM4IiwiZGlzcGxheSI6IiJ9LCJwb3J0cmFpdCI6eyJtYXJnaW4tYm90dG9tIjoiMzAiLCJkaXNwbGF5IjoiIn0sInBvcnRyYWl0X21heF93aWR0aCI6MTAxOCwicG9ydHJhaXRfbWluX3dpZHRoIjo3Njh9" custom_title="Stay Connected" block_template_id="td_block_template_8" f_header_font_family="712" f_header_font_transform="uppercase" f_header_font_weight="500" f_header_font_size="17" border_color="#dd3333"]
- Advertisement -spot_img

Latest Articles